Ad­vi­sors protest

Investment Executive - - FRONT PAGE - BY DWARK A LAKHAN

in a move that few in the fi­nan­cial ad­vi­sor com­mu­nity favour, in­surance com­pa­nies soon will be­gin dis­clos­ing the value of com­pen­sa­tion paid to in­ter­me­di­aries who sell group re­tire­ment ser­vices and group ben­e­fits plans.

That in­tent raises ques­tions about whether ad­vi­sors sell­ing in­di­vid­ual life in­surance soon could be sub­ject to sim­i­lar com­pen­sa­tion dis­clo­sure.

The Cana­dian Life and Health In­surance As­so­ci­a­tion Inc. (CLHIA) in­sti­tuted its new dis­clo­sure regime through Guide­line G19, is­sued last month. In­sti­tut­ing the dis­clo­sure rule fol­lows con­sul­ta­tion with CLHIA mem­bers, no­ti­fi­ca­tion of the in­surance in­dus­try’s reg­u­la­tors and rat­i­fi­ca­tion by the CLHIA’s board of direc­tors. How­ever, G19 was rat­i­fied with­out prior con­sul­ta­tion of af­fected ad­vi­sors and in­ter­me­di­aries.

The dis­clo­sure is ex­pected to

— com­mence on Jan. 1, 2019 six months af­ter the orig­i­nal im­ple­men­ta­tion date of July 1, 2018. The CLHIA an­nounced the de­lay in early Fe­bru­ary af­ter re­ceiv­ing back­lash from ad­vi­sors.

“[G19] was de­vel­oped at the CLHIA with­out the in­put of ad­vi­sors and in­ter­me­di­aries, who were not con­sulted un­til the guide­line was ap­proved,” says Su­san Alle­mang, di­rec­tor of pol­icy and reg­u­la­tory af­fairs with the In­de­pen­dent Fi­nan­cial Bro­kers of Canada in Mis­sis­sauga, Ont. “The is­sue we have is not with the re­quire­ment for dis­clo­sure, but with the process.”

On Jan. 31, the CLHIA be­gan hold­ing cross-coun­try ses­sions with ad­vi­sors to get their in­put on G19.

“Ob­tain­ing in­put from the ad­vi­sor com­mu­nity was al­ways our in­ten­tion, and we have be­gun a ro­bust cross-Canada, in- per­son and on­line con­sul­ta­tion with them,” says Lyne Duhaime, pres­i­dent of the CLHIA’s Que­bec chap­ter, adding that the as­so­ci­a­tion also is cre­at­ing an ad­vi­sory com­mit­tee jointly with ad­vi­sors to get the lat­ter group’s in­put on im­ple­men­ta­tion.

“We know we need to get it right, and that is why we have planned to phase in im­ple­men­ta­tion of the dis­clo­sure stan­dards over a twoyear pe­riod,” Duhaime says.

Ac­cord­ing to the CLHIA, G19 was de­vel­oped in re­sponse to chang­ing ex­pec­ta­tions of in­surance plan spon­sors, reg­u­la­tors and other stake­hold­ers re­gard­ing com­pen­sa­tion dis­clo­sure as a part of a trans­par­ent process aimed at man­ag­ing con­flicts of in­ter­est and treat­ing cus­tomers fairly.

“Trans­parency in group in­ter­me­di­ary com­pen­sa­tion dis­clo­sure is an im­por­tant com­po­nent of help­ing to en­sure fair and ap­pro­pri­ate out­comes for plan spon­sors,” the guide­line states.

G19 will ap­ply to the group re­tire­ment ser­vices and group ben­e­fits busi­ness of all com­pa­nies that are mem­bers of the CLHIA, re­gard­less of the form of com­pen­sa­tion paid or of the dis­tri­bu­tion chan­nel used. (The CLHIA’s mem­ber com­pa­nies ac­count for 99% of Canada’s life and health in­surance busi­ness.)

Com­pen­sa­tion dis­clo­sure will cover all di­rect, in­di­rect and inkind re­mu­ner­a­tion paid to in­ter­me­di­aries, in­clud­ing amounts paid i n re­la­tion to trans­fers, re­ten­tions, cash flows, trailer fees, bonuses, mar­ket­ing al­lowances, spon­sor­ships, travel ex­penses and con­fer­ence in­cen­tives.

For group ben­e­fit plans, com­pen­sa­tion will be re­ported as a per­cent­age of pre­mi­ums or claims paid; for group re­tire­ment ser­vices, it will be based on a per­cent­age of con­tri­bu­tions re­ceived and as­sets un­der ad­min­is­tra­tion. In both cases, com­pen­sa­tion also will be dis­closed in real dol­lar value.

For new con­tracts, dis­clo­sure will be made on or be­fore the ef­fec­tive date of the con­tracts. For on­go­ing con­tracts, dis­clo­sure will take place at least an­nu­ally.

Ad­vi­sors have ex­pressed sev­eral con­cerns with G19. Lawrence Geller, pres­i­dent of L.I. Geller In­surance Agen­cies Ltd. in Camp­bel­lville, Ont., agrees with the prospect of greater dis­clo­sure, but con­tends that there should be full dis­clo­sure of the costs of ad­min­is­ter­ing in­surance plans.

“The CLHIA is not telling the whole truth, but only part of the truth [re­gard­ing] full dis­clo­sure,” Geller says. “Agents are not the only ones who are be­ing paid out of the por­tion of pre­mi­ums al­lo­cated to the cost of plan ad­min­is­tra­tion.”

Geller notes that a por­tion of those costs are al­lo­cated to in­ter­nal sales rep­re­sen­ta­tives, claims ad­ju­di­ca­tion, mar­ket­ing, ad­ver­tis­ing and ex­ec­u­tive com­pen­sa­tion.

“If there’s go­ing to be full dis­clo­sure, these costs, which clients are not nec­es­sar­ily fully aware of, also must be dis­closed,” Geller says.

How­ever, in­surance com­pa­nies are un­likely to dis­close those costs any­time soon. “This [type of dis­clo­sure] is not some­thing that we fore­see at this time,” Duhaime says.

Geller be­lieves that in­surance com­pa­nies are try­ing to avoid the pos­si­bil­ity of full cost dis­clo­sure be­ing man­dated by reg­u­la­tors: “By dis­clos­ing agent com­pen­sa­tion, [in­sur­ers] are hop­ing that this ac­tion will be viewed in pos­i­tive light by the reg­u­la­tors [so in­sur­ers] will not be forced to dis­close other costs.”

Dave Pa­tri­arche, pres­i­dent of Main­stay In­surance Bro­ker­age Inc. in Thorn­hill, Ont., and founder of the Cana­dian Group In­surance Bro­kers Inc., views the fact that in­surance com­pa­nies will be dis­clos­ing ad­vi­sor com­pen­sa­tion as “ad­ver­sar­ial.”

“[The dis­clo­sure model] shows a lack of trust in bro­kers do­ing it them­selves,” he says. The dis­clo­sure will put a spot­light on the earn­ings ad­vi­sors re­ceive, he adds, with no recog­ni­tion of the value they bring to the table.

Alle­mang and Pa­tri­arche an­tic­i­pate the com­pen­sa­tion dis­clo­sure will be ex­panded to in­clude in­di­vid­ual life in­surance. In fact, Pa­tri­arche sug­gests, there’s greater risk of con­flicts in­her­ent in the sale of in­di­vid­ual life in­surance poli­cies vs group plans, in part be­cause com­mis­sions on in­di­vid­ual poli­cies are higher than those for group plans.

Duhaime is more cir­cum­spect: “We do rec­og­nize that there is greater risk due to the struc­ture of com­pen­sa­tion on in­di­vid­ual prod­ucts, in that dis­clo­sure could neg­a­tively im­pact a con­sumer’s de­ci­sion as to whether or not to pur­chase in­surance.

“Much of [the CLHIA’s] cur­rent dis­cus­sion,” she adds, “is fo­cused on how to achieve a bal­ance be­tween com­pen­sa­tion dis­clo­sure and en­sur­ing that Cana­di­ans are able to meet their fi­nan­cial se­cu­rity goals through ap­pro­pri­ate lev­els of in­surance.”

Still, there’s over­ar­ch­ing con­cern that i nsurance com­pa­nies have an ad­di­tional agenda in sup­port­ing G19. Geller sug­gests that in­surance com­pa­nies could be gear­ing up to shift to­ward a cap­tive ad­vi­sor model, in which white-la­bel in­surance prod­ucts would be sold through man­ag­ing gen­eral agen­cies that are as­so­ci­ated with spe­cific in­sur­ers.

Un­der that model, Geller says, “The only in­surance agents that would be left are those who are salaried.”

Pa­tri­arche shares those sen­ti­ments, not­ing that in­surance com­pa­nies might have a “hid­den busi­ness ob­jec­tive,” in which they are pre­par­ing to shift to­ward lower cost di­rect sales by elim­i­nat­ing the role of in­ter­me­di­aries.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.